Here's the revealing story of diligence, determination and success that led to the founding of Eagle Audit – and how our fraud investigation success can benefit your business.

It all started with toilets: How Eagle Audit Advantage was founded.

Eagle Audit Advantage traces its roots back to March 2008, in a prominent condominium tower in downtown Toronto, when an unusual set of circumstances ignited curiosity and anger in two owners who, prior to that time, had never been involved in the affairs of their condominium building.

Nine months earlier, in July 2007 the board of directors and property manager at 38 Elm Street (Metropolitan Toronto Condominium Corporation No. 933) had prudently decided to replace the original water-guzzling 13.5-litre toilets in all 434 suites of their building with new low-consumption 6-litre toilets. The project was proposed as a corporation expense at no extra cost to owners, with estimated pay-back to the corporation in only 20-24 months due to anticipated water cost savings.

The total purchase price for 320 new Toto Eco Supreme toilets (first of a two-part order) was $142,276.65 and a purchase order was prepared by the property manager, who presumably had conducted a diligent tendering for the deal from reputable vendors and contractors. Then the property manager submitted a cheque requisition to management company head office for the full amount: 100 percent payment up-front. The property manager declared to the board of directors that these highly unusual payment terms were necessary in order to secure the lowest price. The directors accepted that explanation. Management company head office issued the cheque on an ASAP basis. The board president signed the cheque without concern after the management company regional supervisor had first signed it. The cheque was handed over to the contractor, and he immediately certified it.

The board expected installation work to begin in summer 2007. Multiple excuses for delay were offered by the manager and contractor in subsequent weeks. By late fall 2007 the situation was bleak. No toilets, many broken promises and general evasiveness by the contractor, plus over $142,000 had been paid out from the condominium corporation’s operating account many months earlier.

The directors of MTCC No. 933 began to face an unpalatable possibility: the condominium corporation had probably been defrauded. Pressure was put on the property manager for answers, and in short time the board decided to contact the corporation’s legal counsel. In February 2008 a statement of claim was filed in Ontario Superior Court. Litigation against the toilet contractor was the board’s only apparent option for recovery of the financial loss, but he could not be found and a few months later, litigation proved to be a dead-end.

Pursuant to Ontario’s Condominium Act, the board was obligated to formally notify all owners of this litigation action. A brief letter was mailed to owners in March 2008; it made no mention of the dollar amount of the claim nor the detailed circumstances of the matter.

When the letter was received, many suite owners at 38 Elm Street were troubled and upset that the heavily promoted toilet replacement program had so precipitously turned into a fiasco. But only two owners were motivated to go out and dig for the details that the board of directors at 38 Elm Street had chosen not to disclose.

When William Stratas and Judy Sue, long-time owners at 38 Elm Street, opened the case folder in the 10th floor file room at Ontario Superior Court on University Avenue in Toronto, they were shocked at what the statement of claim revealed. Full payment deposit of over $142,000 with no hold-back and no written contract. Few details and a sketchy timeline in the claim, suggesting a lack of proper record-keeping and documentation by management. Typographical errors in the legal document, suggesting lack of diligent review prior to filing. And, the name of the suspected fraudster and name of the corporate entity that had allegedly taken the money.

And that’s the moment when these two diligent owners began a 30-month odyssey that ultimately led to recovery of the lost money, and much, much more.

The pair began an investigative effort that dove deep into all aspects of the failed toilet deal. And the more they dug, the more troubled they became. William and Judy met privately with one of the board members, and suggested that the directors responsible for the fiasco should resign. When the director rejected the offer of resignation, William and Judy decided to run as candidates in the board election scheduled three months later. The outcome was a rout, over 7:1 margin of victory for the two challengers. Interesting footnote: the margin was so huge that even the forgery of 66 false proxy votes by unknown persons in support of the incumbent directors was not enough to sabotage the challengers’ victory.

Working from a minority position on the board, William and Judy urged the resignation of the previous board president, who, in their opinion had been paralyzed with indecision during the ongoing toilet fiasco. By consensus of the board, William was named president and Judy was named vice-president and treasurer. And that’s when things really became interesting.

William and Judy immediately took possession of all the corporation’s financial documents and expense records back to December 2005, the date when the former property manager had first assumed duties. And then to begin detailed examination of every single document in those records — essentially a forensic examination of every single transaction, from petty cash to major contracts, that had occurred under control of the previous manager over the period of two and a half years. The examination effort was expanded to include management office correspondence, cell phone records, hard drives and related records of the condominium corporation.

Several weeks later, Judy’s examination had identified dozens of significant apparent anomalies, many items purchased by the manager and paid by the condominium corporation that seemingly had no legitimate purpose for normal management or maintenance functions in a condominium building. In addition, she discovered payroll anomalies and credit card expense anomalies, plus major anomalies related to holiday season gratuity payments for corporation employees. Judy compiled her lengthy detailed list of apparent expense anomalies and presented it to the board for confidential discussion. And afterward, to the management company in a tense meeting with senior representatives. Most aspects of these discussions remain confidential within the board, but suffice it to say, the directors were not pleased with the answers and lack of accountability from management. Which is why in late August 2009 the board of directors terminated the management services contract with 60-day notice.

The day after management walked out the door in the last week of October 2009, we launched our litigation in Ontario Superior Court. The statement of claim, months in detailed preparation, was a powerful summation of various allegations against the management company and a pair of its employees including the on-site manager. Our exhaustive audits had tallied a claim of $306,549 in damages for negligence, theft and fraud allegedly committed at 38 Elm Street from December 2005 to April 2008.

Less than a year later, in September 2010 the litigation was settled out of court, following a series of legal manoeuvres our board initiated to dig out the details of what may have really happened in this matter. As public court records disclose, in June 2010 we obtained an ex-parte court order (informally termed a ‘Norwich order’) that compelled three banks to divulge the transaction records of five bank accounts held by two individuals (including the former property manager’s personal account) and the contractor’s corporation bank account. Less than three months later the litigation came to successful conclusion in private settlement.

This legal outcome was a huge achievement for a volunteer board of directors, unprecedented in any condominium corporation at any time previous. It was also a huge personal achievement for the two directors who spearheaded the entire effort… and thus was set the foundation for Eagle Audit Advantage Inc.

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